As a veterinary practice owner, you have a lot to handle. In addition to providing your customers with excellent care and customer service, you must take steps to ensure your business’s success and longevity. One of these steps is placing a dollar value on your practice. In this article, we examine the process of valuing your veterinary practice.
The Purpose of Valuing Your Practice
There are many reasons to determine the value of your veterinary practice, including:
- Future sale: The most common reason to value one’s veterinary practice is to establish a sales price. Before placing your practice on the market, it is important to know how much profit you may be entitled to from a successful sale.
- Sales management: When you decide to sell, terminal cash flow will define how much your practice is worth. Understanding the value of your practice will allow you to determine whether you are taking steps to enhance its profitability.
- Qualify for a loan: If you plan on applying for a personal or business loan, you may use some or all of your veterinary practice as collateral. Therefore, when seeking a loan, it is important to know the fair market value of your practice.
Veterinary Practice Valuation Methods
There are three fundamental approaches to valuing a veterinary practice: the income approach, the market approach, and the asset approach.
Income Approach
Determining income is the most popular method of valuing a veterinary practice. The income approach focuses on the cash flow earned by a practice. Cash flow helps to determine a practice’s growth prospects and risk. This approach requires an analysis of the following types of risk:
- Geographic risk: An analysis of geographic risk reveals how dependent a practice is on the economy of the area in which it is located.
- Size risk: This type of risk pertains primarily to small businesses.
- Key person risk: This applies if a veterinary practice relies on the services of a single veterinarian.
Market Approach
Under the market approach, a practice’s value is assessed based on the value of similar veterinary practices in the same region. The difficulty with this approach, however, is the lack of available and accurate data from other practices.
Asset Approach
The asset approach focuses on determining the value of a veterinary practice’s net asset value, which is how much the practice’s current tangible assets are worth, including goodwill. Goodwill, which is an intangible asset, is the fair value of a practice’s assets minus the market value of its liabilities.
Contact our Experienced Veterinary Attorneys
If you own a veterinary practice, you need an experienced veterinary attorney on your side. At Mahan Law, our experienced veterinary professionals understand how to succeed in the veterinary industry. When you come to us for assistance, our experienced veterinary attorneys will strive to ensure that you reach your professional goals. Please contact us today to begin getting the most out of your veterinary practice.